Mark Milke: Harper’s bloated budgets shouldn’t earn Frum’s praise

Canada’s Conservative government deserves praise on a number of fronts. Since coming to power, the Tories have ended the reflexively relativist approach to foreign policy, tackled supposedly politically sensitive immigration issues and understood and promoted the need for private-sector jobs, especially in the energy sector.

Thus, when David Frum wrote, in his Saturday National Post column, that “under Stephen Harper, Canada can fairly claim to be the best-governed country among advanced democracies in the world,” he was not far off the mark.

However, where Frum was mistaken was in declaring that “Thursday’s federal budget locks up Canada’s lead.”

That is true only in comparison to basketcase countries that allowed their fiscal problems to linger so long that emergency reforms were unavoidable. But that comparison unintentionally damns the Tories with faint praise.

Frum’s praise for Ottawa’s go-slow approach on balanced books is premised on the perception that if Ottawa actually cut spending (as opposed to slowing the rate of growth) such actions would endanger our prosperity: “If you reduce spending too fast, you crimp your economy,” wrote Frum.

But that’s a mistaken notion.

To use just one example from a large body of research, in 2009, leading fiscal policy expert and Harvard University professor Alberto Alesina and his colleague Silvia Ardagna reviewed stimulus initiatives in Canada and 20 other industrialized countries from 1970 to 2007. In the 91 instances where governments tried to stimulate the economy, it turned out the unsuccessful attempts generally were the ones based on increased government spending. Alesina noted that “a one percentage point higher increase in the current [government] spending-to-GDP ratio is associated with a 0.75 percentage point lower growth.”

To see how Ottawa’s own stimulus spending was unnecessary, consider how Canada emerged from the last recession and how government stimulus spending had nothing to do with it. Our recession ended in mid-2009; it was only about then that federal and provincial governments started spending extra (borrowed) stimulus cash.

To credit stimulus spending for the end to Canada’s recession, one must argue that extra (borrowed) dollars mostly spent after June 2009 somehow magically rescued the Canadian economy before June 2009.

All the borrowing did have one effect: It added to the existing large federal debt mountain, forecast to hit $614-billion in 2015, up from $457-billion in 2008.

It is in that context that the 2012 federal budget should be placed and graded.

The federal Conservatives now forecast balanced federal books by 2015 — six years after the 2009 recession ended. In contrast, in the 1990s, prime minister Jean Chrétien’s government reformed spending rapidly; that is why Liberal budgets went from red to black ink in just three years.

Regrettably for future generations, with that Liberal-era exception noted, federal and provincial governments have long preferred to run deficits.

Since 1947 (as far back as Finance department statistics go on such matters) and onward to 2012, the federal government has recorded deficits in 45 of 65 years — two out of every three postwar years on average. In the provinces, a comparison is unavailable before the mid-1980s, but the pattern is also clear: Over the last 26 years, the provinces have collectively run up deficits in 19 years, or about four out of every five years.

Yes, extraordinary events such as recessions, depressions and wars severely restrict fiscal choices. But those factors are not in play most years. Since the Second World War, Canada has experienced eight recessions, most lasting less than a year.

Contrary to what David Frum argues, there is no danger in getting to balanced federal books quicker. Just the opposite: It is inter-generationally irresponsible to take the opposite approach.